Blue Ocean Strategy

Question 1

Chapter 1 Creating Blue Oceans

• 4 driving forces of creating blue oceans (or 4 reasons of creating blue oceans): DIES
  
  • Differentiating brand becomes harder in overcrowded industries
  • Increasing price wars
  • supply Exceeds demand
  • Shrinking profit margins
• The initial step to create blue oceans is to define the basic unit of analysis - strategic move. A strategic move is the set of managerial actions and decisions involved in making a market-creating business offering.

Answer 1

Chapter 1 Creating Blue Oceans

• What strategic logic do the creators of blue oceans follow? They follow the concept of value innovation.
• discuss the importance of value innovation to blue ocean strategy: cornerstone + if pop
  
  • it is the cornerstone of blue ocean strategy.
  • integrates functional & operational activities.
  • focuses on making the competition irrelevant by creating a leap in value for both the company and its buyers.
  • places equal emphasis on value and innovation.
  • occurs only when companies align innovation with utility, price, and cost positions.
  • pursues differentiation & low cost simultaneously.
• Compare red vs. blue ocean strategies: CDDMV
  
  • competition
    
    • red - beat the competition.
    • blue - make the competition irrelevant
  • demand
    
    • red - exploit existing demand.
    • blue - create and capture new demand.
  • differentiation and low cost
    
    • red - pursue differentiation or low cost.
    • blue - purse differentiation and low cost.
  • market space
    
    • red - compete in existing market space.
    • blue - create uncontested market space.
  • value-cost trade-off
    
    • red - make the value-cost trade-off.
    • blue - break the value-cost trade-off.

Question 2

Chapter 1 Creating Blue Oceans

• The 6 principles of formulating and executing blue ocean strategy and the risk factor each principle decreases.
  
  • 4 formulation principles: BBBS
    
    • reconstruct market Boundaries - search risk
    • focus on the Big picture, not the numbers - planning risk
    • reach Beyond existing demand - scale risk
    • get the strategic sequence right - business model risk
  • 2 execution principles: OH, BE
    
    • Overcome organizational Hurdles - organizational risk
    • Build Execution into strategy - management risk

Answer 2

Chapter 2 Analytical tools & frameworks for creating & executing blue ocean strategy

• strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.
• why strategy canvas or benefits of strategy canvas:
  
  • visualize current strategic position
  • help to create future strategy
  • show the strategic profile of an industry
  • show the strategic profile of current & potential competitors
  • show the strategic profile of value curve
• value curve is the basic component of the strategy canvas, it is a graphic depiction of a company’s relative performance across its industry’s factors of competition.
• 4 actions to create a value curve or create a value innovation: CRER
  
  • Create factors that the industry has never offered.
  • Reduce certain factors below the industry standard.
  • Eliminate certain factors that the industry takes for granted.
  • Raise certain factors above the industry standard.

Question 3

Chapter 2 Analytical tools & frameworks for creating & executing blue ocean strategy

• the 3 criteria that define a good blue ocean strategy are:
  
  • focus: Southwest’s value curve emphasizes only 3 factors: friendly service, speed, frequent point-to-point departures.
  • divergence: the value curves of blue ocean strategies always stand apart.
  • compelling tagline: good tagline must not only deliver a clear message but also advertise an offering truthfully (e.g. “The speed of a plane at the price of a car–whenever you need it”). In fact, a good way to test the effectiveness of a strategy is to look at whether it contains a strong and authentic tagline.

Answer 3

See the next card for chapter 3.

Question 4

Chapter 3 The 1st principle of formulating blue ocean strategy - reconstruct market boundaries

• blue 6-path framework to reconstruct market boundaries:
  
  • path 1 - look across alternative industries.
  • path 2 - look across strategic groups.
  • path 3 - look across complementary product & service offerings.
  • path 4 - redefine the buyer group.
  • path 5 - rethink the functional or emothional orientation.
  • path 6 - participate in shaping external trends over time.

Answer 4

Chapter 3 The 1st principle of formulating blue ocean strategy - reconstruct market boundaries

• red 6-path framework to reconstruct market boundaries:
  
  • path 1 - industry - focuses on rivals within its industry.
  • path 2 - strategic group - focuses on competitve position within strategic group.
  • path 3 - buyer group - focuses on better serving the buyer group.
  • path 4 - scope of product or service offering - focuses on maximizing the value of product and service offering within the bounds of its industry.
  • path 5 - functional-emotional orientation - focuses on improving price performance within the functional-emotional orientation of the industry.
  • path 6 - time - focuses on adapting to external trends as they occur.

Question 5

Chapter 4 The 2nd principle of formulating blue ocean strategy - focus on the big picture, not the numbers

• how to draw strategy canvas or visualize a strategy: AESC
  
  • step 1 visual Awakening.
  • step 2 visual Exploration.
  • step 3 visual Strategy fair.
  • step 4 visual Communication.

Answer 5

Chapter 4 The 2nd principle of formulating blue ocean strategy - focus on the big picture, not the numbers

• how to visualize a strategy at the corporate level?
  
  • use the strategy canvas.
  • use the pioneer-migrator-settler (PMS) map.
    
    • pioneers - businesses that offer unprecedented value.
    • migrators - lies somewhere in between. these are businesses whose strategies fall on the margin between red oceans and blue oceans.
    • settlers - businesses whose value curves conform to the basic shape of the industry’s. They are stuck with the red ocean. settlers are defined as me-too businesses.
  • overcome the limitations of strategic planning.

Question 6

Chapter 5 The 3rd principle of formulating blue ocean strategy - reach beyond existing demand

• how to reach beyond existing demand:
  
  • think noncustomers before customers.
  • think commonalities before differences.
  • think desegmentation before pursuing finer segmentation.

Answer 6

Chapter 5 The 3rd principle of formulating blue ocean strategy - reach beyond existing demand

• 3 tiers of noncustomers that can be transformed into cutomers:
  
  • 1st tier - “soon-to-be” noncustomers sit on the edge of the market, waiting to jump ship.
  • 2nd tier - “refusing” noncustomers do not use or cannot afford the market offerings.
  • 3rd tier - “unexplored” noncustomers are the farthest away from existing customers. They have not been targeted as potential customers by any player in the industry.

Question 7

Chapter 6 The 4th principle of formulating blue ocean strategy - get the strategic sequence right

• companies should build their blue ocean strategy in the sequence of utility, price, cost, and adoption:
  
  • step 1 develop exceptional buyer utility
  • step 2 find the right strategic price
  • step 3 meet the target cost
  • step 4 overcome resistance of employees, business partners, and the general public in the adoption process.
• step 1 develop exceptional buyer utility
  
  • 6 stages of the buyer experience cycle:
    
    • purchase
    • delivery
    • use
    • supplements
    • maintenance
    • disposal
  • 6 utility levers:
    
    • customer productivity
    • simplicity
    • convenience
    • risk
    • fun & image
    • environmental friendliness
  • how to uncover the blocks to buyer utility?
    
    • customer productivity: in which stage are the biggest blocks to customer productivity?
    • simplicity: in which stage are the biggest blocks to simplicity?
    • convenience: in which stage are the biggest blocks to convenience?
    • risk: in which stage are the biggest blocks to reducing risks?
    • fun & image: in which stage are the biggest blocks to fun and image?
    • environmental friendliness: in which stage are the biggest blocks to environmental friendliness?
• step 2 how to find the right price for an offer? Use a tool called price corridor of the mass to find the right price.
  
  • 1st, identify the price corridor of the mass.
    
    • look at the products that take different forms but perform the same function.
    • look at the products that take different forms and functions but share the same objective.
  • 2nd, specify a price level within the price corridor.
• step 3 how to meet the target cost? To hit the cost target, companies use 4 levers.
  
  • streamlining operations and introducing cost innovations.
  • parterning.
  • changing the pricing model of the industry.
  • pricing innovation.
• step 4 adoption.
  
  • resistance to a new business model can spread to the company’s employees, business partners, and the general public.
  • so, companies need overcome resistance of employees, business partners, and the general public when adopting a new business model.

Answer 7

Chapter 6 The 4th principle of formulating blue ocean strategy - get the strategic sequence right

• the blue ocean idea (BOI) index provides 4 criteria to test blue ocean strategy or a new business model:
  
  • utility: is there exceptional utility? are there compelling reasons to buy your offering?
  • price: is your price easily accessible to the mass of buyers?
  • cost: does your cost structure meet the target cost?
  • adoption: have you addressed adoption hurdles up front?

Question 8

Chapter 7 The 1st principle of executing blue ocean strategy - ovecome 4 organizational hurdles

• 4 organizational hurdles: WRAP the hurdles.
  
  • Waking employees up to the need for a strategic shift.
  • limited Resources.
  • motivAtion.
  • Politics.
• use tipping point leadership to overcome these 4 hurdles.
  
  • W: make people accept the need for a strategic shift:
    
    • show the worst reality.
    • meet with disgruntled customers.
  • R: multiply the value of limited resources:
    
    • redistribute resources to hot spots.
    • redirect resources from cold spots.
    • engage in horse trading.
  • A: motivate the mass of employees:
    
    • zoom in on kingpins.
    • place kingpins in a fishbowl.
    • atomize to get the organization to change itself.
  • P: overcome political forces:
    
    • secure a consigliere on top management team.
    • leverage angels and silence devils.

Answer 8

See the next card for chapter 8.

Question 9

Chapter 8 The 2nd principle of executing blue ocean strategy - build execution into strategy

• fair process allows companies to build execution into strategy. The 3E principles of fair process:
  
  • engagement
  • explanation
  • expectation clarity
• fair process creates intangible assets:
  
  • intellectual and emotional recognition
  • trust and commitment
  • voluntary cooperation in strategy execution

Answer 9

see the next card for chapter 9.

Question 10

Chapter 9 the sustainability and renewal of blue ocean strategy

• why does blue ocean strategy have sustainability? because of imitation barriers to blue ocean strategy:
  
  • value innovation does not make sense to a company’s conventional logic.
  • blue ocean strategy may conflict with other companies’ brand image.
  • natural monopoly: the market often cannot support a second player.
  • patents or legal permits block imitation.
  • high volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market.
  • network externalities discourage imitation.
  • imitation often requires significant political, operational, and cultural changes.
  • companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.
• why blue ocean strategy need to be renewed? because it will be imitated eventually.
  
  • create another blue ocean when the value curve begins to converge with those of the competition.